Update: Lawmakers' votes open way for final US debt push

WASHINGTON - US lawmakers opened the way on Friday for a last-ditch bid for a possible bipartisan compromise to avert a crippling national default just four days before the deadline to raise the country's debt ceiling.

The Republican-controlled House of Representatives approved a Republican deficit-cutting plan and the Democratic-led Senate quickly rejected it - moves that underscored the ideological divide but also cleared a path to start negotiating a deal.

The back-to-back votes broke weeks of political inertia in efforts to lift the US$14.3 trillion US debt limit by Tuesday after which the world's largest economy will be unable to pay all of its bills, the government says.

Delays and procedural hurdles will still make it all but impossible for Congress to strike a deal and send it to President Barack Obama's desk until the 11th hour, injecting a dangerous level of uncertainty into already rattled global financial markets.

Even if a late deal can be struck, the United States risks losing its top-notch AAA credit rating.

Progress toward an agreement did not appear imminent.

Democratic aides said Republicans had not yet given them suggestions on how to craft something that could win support from both parties, suggesting that parliamentary manoeuvring and finger-pointing would continue.

With time running short, the House pushed a Republican deficit-cutting plan through by a vote of 218-to-210 after the party's leaders reworked the bill to appease anti-tax conservatives in their ranks.

The legislation, denounced earlier by Mr Obama who had admonished lawmakers to stop wasting time and find a way 'out of this mess,' was always doomed to defeat in the Senate where all of Mr Obama's Democrats had vowed to vote against it.

The Senate defeated the measure, 59-to-41, and Senate Majority Leader Harry Reid, a Democrat, was expected to move forward with a different approach that aims to get enough votes from both parties to pass Congress by Tuesday.

Both sides have been at impasse for weeks with lawmakers locked in a blame game that has brought the country to the brink of an unprecedented default, which could plunge America back into recession and trigger economic turmoil globally.

World leaders have been stunned by the dysfunction in Washington. World Bank President Robert Zoellick on Friday said the United States was playing with fire.

America's largest foreign creditor, China, has repeatedly urged Washington to protect its dollar investments and its state-run news agency on Friday said the United States had been'kidnapped' by 'dangerously irresponsible' politics. -- REUTERS

 

Source: Business Times Breaking News

Update: US lawmakers close to deal to avoid default

WASHINGTON - US lawmakers were close to a last-ditch US$3 trillion deal on Sunday to raise the US borrowing limit and assure jittery financial markets that the United States will avoid a potentially catastrophic default.

Growing momentum toward a compromise raised hopes that a weeks-long partisan battle over cutting the US deficit was nearing an endgame. There are just two days left to lift the debt ceiling, which caps how much money the United States can borrow to pay all of its bills.

'We're really, really close to an agreement,' said Mitch McConnell, the Senate Republican leader who has been in negotiations with Vice-President Joe Biden on a plan to reduce the deficit and permit a vote to raise the debt ceiling.

Financial markets showed signs of relief at a deal in the making, as US stock futures jumped and the US dollar rebounded on Sunday.

Signalling agreement could be imminent, an aide said Senate Majority Leader Harry Reid would support the emerging deal as long as his fellow Democrats back it as well. But another senior congressional aide said a Senate vote was 'highly unlikely' until Monday at the earliest.

House of Representatives Democratic Leader Nancy Pelosi, a leading liberal whose consent is considered critical to passage of any compromise because it would likely draw limited Republican votes, had yet to stake out her position.

She set a meeting with House Democrats on Monday on how to proceed.

A deal would ease the immediate crisis but repercussions will be felt for years to come. Bitter brinkmanship has turned dysfunction seemingly into the norm in Washington, undercut America's stature as the world's capitalist superpower and set the stage for a deeply ideologically 2012 presidential race when President Barack Obama is seeking re-election.

Full congressional approval could come within hours of a final accord, but leaders will first have to gauge whether they have the votes to pass it though the House and the Senate.

Many Democrats were sceptical of the deal that Republicans said would cut deficits by up to US$3 trillion over a decade. It would force Democrats to stomach deep spending cuts without the accompanying tax increases they wanted.

In a sign Democratic leaders may lose the support of their most liberal members, Representative Raul Grijalva said he could not back the plan. He is the head of the 74-member Congressional Progressive Caucus.

'Today we, and everyone we have worked to speak for and fight for, were thrown under the bus,' he said.

Some Democratic support will be needed to offset the inevitable loss of Republican conservatives affiliated to the Tea Party and get the deal through the House.

David Plouffe, a senior adviser to Mr Obama, said there was general agreement on a plan that would cut the US deficit over 10 years in two stages: roughly US$1 trillion up front and the rest based on the recommendation of a joint bipartisan committee.

The proposed US$3 trillion in savings may calm financial markets but it appears insufficient to avoid a downgrade of America's top-notch AAA rating by Standard & Poor's. The agency last week reiterated that US$4 trillion in deficit-reduction measures would be 'a good downpayment' to show that Washington was putting the country's finances in order.

'It's really unclear whether a downgrade will be avoided as a result of this deal,' said Kathy Lien, director of currency research at GFT, New York.

British and Japanese officials warned of disastrous consequences for the global economy if the last-ditch talks among lawmakers in Washington failed to agree on raising the US borrowing limit and averting a debt default.

Governments across the world fear instability in financial markets because of the key role of the US dollar in global banking and trading systems.

But with a deal possibly in sight, the Swiss franc, the favoured safety currency during this crisis, pulled back from record highs against the US dollar, and gold slipped off record highs.

Markets were already moving in anticipation of good news.

The S&P 500 futures bounced 19.8 points, or 1.5 per cent, to 1307.40. Gold fell as the metal, which has reached new heights during the stalemate, lost US$16.59 to US$1,610 an ounce.

'At this point, the markets are perceiving that a deal and a vote will be announced,' said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. -- REUTERS

 

Source: Business Times Breaking News